The Critical Path: Tools for Resolving Construction Disputes : California Construction Lawyer & Attorney for Dispute Resolution in Los Angeles, San Diego & the S.F. Bay Area

NUMBER ONE: Exchange with your opponent salient information about the case well in advance of the mediation. If you represent the plaintiff you may want to ask defense counsel what additional information, if any, is necessary for the defense to be fully prepared for the mediation. If you represent the defendant you will want to be sure the plaintiff’s counsel is fully informed about your view on the liability and damages issues. Last minute exchanges of information frustrate the mediation process because there will be insufficient time for the other side to analyze the information and review it with experts, management, and other people of influence.

NUMBER TWO:  Set a target settlement range prior to mediation. Your settlement range should be analyzed by considering your alternative to a negotiated agreement (BATNA). Your BATNA "is the standard against which any proposed agreement should be measured. This is the only standard which can protect you both from accepting terms that are too unfavorable and from rejecting terms it would be in your best interest to accept. (Robert Fisher & William Ury, Getting to Yes: Negotiating Agreements Without Giving In ( Penguin Books 1991).

 NUMBER THREE: Analyze in advance your risk versus concession points. You should consider at what point the risks of trial outweigh the concessions you must give to reach a resolution of the dispute. These are your ROCR points (Risks Outweigh Concessions for Resolution), and their confluence leads to settlements.

NUMBER FOUR: Prepare an effective mediation brief. Your brief should focus on the key facts of the case pertaining to liability and damages. While briefs are very helpful to mediators they serve the dual purpose of informing your opponent about the strengths of your case. Some lawyers do not exchange their briefs with opposing counsel. I think that is a mistake. A well-written brief sent to opposing counsel well in advance of the mediation allows you to inform the decision makers on the other side about your view of the world. If there is some information for the mediator’s eye’s only, you can add a confidential section to the mediator’s brief. For example, you may have some information you intend to use at trial that you don’t want the opponent to know about but could be useful information for the mediator.

NUMBER FIVE: Prepare your client for the mediation. You should have a pre-mediation meeting with your clients to discuss your settlement strategy, the risks of trial, the costs of litigation, including attorneys fees and expert fees, the implications of a statutory offer to compromise and the possibility of paying the other side’s fees and costs, evidentiary problems and motions in limine that could limit your ability to put on your case, the possibility of an appeal and the length of time and the costs associated with an appeal, collectability issues, and any other fact that would help your client make an informed decision with regard to the settlement value of the case.  

NUMBER SIX: Ensure the presence of the decision makers. Nothing sinks a mediation faster than not having the captains on board and engaged in the process.

NUMBER SEVEN: Show respect for other parties. The objective in mediation is to find a solution to a problem. People who feel disrespected are generally more interested in saving face than they are in resolving the dispute. While you do not have to agree with the things that are being said by your opponent, you should show respect for the other side’s point of view.   

NUMBER EIGHT: Be willing to listen. Effective listening may be the greatest skill-set you can bring to the mediation. Unless you attempt to see things from the other side’s point of view, you will not be able to see your case from the most important vantage points: the jury box and the bench. After all, the judge and the jury are duty bound to carefully listen to the other side at trial; you should be equally engaged and attuned in mediation.

NUMBER NINE: Remain flexible. Enough said.

NUMBER TEN: Don’t hold on to unreasonable expectations. You should not expect to settle the case based on the terms you might receive on your best day of trial. You should go into the mediation with a settlement range based on a realistic risk analysis that considers the strengths and weaknesses of your case and even takes into account the things you cannot control, like an unfavorable jury, the exclusion of a key piece of evidence, or a disastrous witness.

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Lawyer jokes. Many lawyers are offended by them. While they are sometimes offensive, they are often humorous, and some even have an element of truth to them, like the one below:

A judge tells the taxi driver to take him to the halls of justice." Where are they?"asked the driver.

"You mean to say that you don't know where the courthouse is?" asked the incredulous judge.

"The courthouse? Of course I know where that is," replied the driver. "But I thought you said you wanted to go to the halls of justice."

Stepping up from the world of jokes and tall tales to dramatic moments at the movies, we hear Paul Newman's character saying in The Verdict , "The court exists to give 'em a chance at justice."

We can pass off such views as merely being an attempt at humor or entertainment. However, we should take pause when similar sounding statements are made by credentialed professionals like the great Oliver Wendell Holmes, Jr., an Associate Justice of the Supreme Court of the United States for 30 years, who is reported to have said to one young lawyer who entered his courtroom:

"This is a court of law young man, not a court of justice!"

While such statements seem shocking, how can justice always be perfectly administered by the imperfect men and women of our legal system, including lawyers, judges, and jurors? How can even well-meaning people always accurately apply the common law that has evolved over hundreds of years and the modern statutory law enacted by the competing interests of political bodies? Even though we have the best legal system in the world, is it reasonable to expect that justice can always be served given the indeterminate character of language and the changing mores of a diverse population? Justice Arthur Gilbert of the California Court of Appeals recently gave a speech based on the supposition that our expectations that the law will provide a fair measure of predictability and certainty is, in many cases, an illusion.

If these things are true, then, one of the most important attributes for lawyers is the ability to predict the outcomes of trials. In a famous law review article entitled The Path of the Law, Oliver Wendell Holmes, Jr., two years before his appointment to the U.S. Supreme Court, wrote about the awesome power of the state to enforce the judgments of courts and the important role lawyers have in trying to predict what will happen at trial:

When we study the law we are not studying a mystery but a well known profession. We are studying what we shall want in order to appear before judges, or to advise people in such a way as to keep them out of court. The reason this is a profession, why people will pay lawyers to argue for them or to advise them, is that in societies like ours the command of the public force is intrusted to judges in certain cases, and the whole power of the state will be put forth, if necessary, to carry out their judgments and decrees. People want to know under what circumstances and how far they will run the risk of coming against what is so much stronger then themselves, and hence it becomes a business to find out when this danger should be feared. The object of our study, then, is prediction, the prediction of the incidence of the public force through the instrumentality of the courts. (The Path of the Law, 10 Harvard Law Review 457 (1897))

Most civil cases settle before trial. In California state courts, about 90 percent of the civil cases are settled prior to trial, and in Federal Court, the rate is closer to 95 percent. However, those who do not settle their cases before trial do not necessarily do better in court. In fact, a recent study has shown a propensity for decision errors when offers of settlement are rejected. Plaintiffs committed decision errors, receiving an award at trial that is less than or equal to the last offer made by defendants, in 61.2 percent of the cases in the study. Defendants made decision errors, having to pay damage awards to plaintiffs that were greater than or equal to the last demand made by plaintiffs, in 24.3 percent percent of the cases in the study. However, it should be noted that the mean cost of the error for plaintiffs was $43,000 while the defendants, when they made a mistake, the mean cost was $1,140,000.

Trial lawyers must be more than predicting machines, they must be effective counselors who explain not only the chances of winning or losing, but also explain what can happen when "justice", at least their clients' view of justice, is not served in court. What are the practical consequences of losing, what can happen if you win but are not deemed the prevailing party by the court, are there litigation risks that are not obvious to a layman? What happens when offers of settlement are rejected and the result at trial is not as good as the rejected offer? All of these questions must be explored well in advance of trial. 

A recent unpublished case in California, illustrates the unpredictable path of the law: A trial over the purchase of real property resulted in a finding by the trial court that neither side performed their duties under the purchase agreement. Nevertheless, the defendant filed a post-trial motion for attorney fees and was awarded $538,884. On appeal the plaintiff asked, in essence, how could the defendant be the prevailing party when the trial court said he did not perform his duties, and when the he voluntarily dismissed his cross-complaint?  The Court of Appeals affirmed the decision of the trial court, stating that the defendant was the prevailing party under the laws and facts of the case.

Lawyer jokes can be funny, but there is nothing funny about the unanticipated consequences of a trial. The power of the courts to enforce their judgments and decrees is no laughing matter, either. That is why I am such a proponent of mediation. It is a dispute resolution process that allows the parties to decide, not judges or juries, what is in their best interests, according to the best predictions their lawyers can make. 

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The NCAA Basketball Tournament, known as March Madness, is upon us. Each year college basketball fans are captivated by this great sporting event, where winners advance toward the championship and losers go home. Trials are like that: eventually there is a winner and a loser in every case. Except the loser does not always go home; sometimes he appeals. In a recent case the California Court of Appeals alluded to another march (Sherman's) and another kind of madness when it used the term scorched earth litigation to describe the hard fouling, take charge lawyering in the case.

 After the trial's conclusion, the court made a number of comments indicating the case was a "disaster" and had gotten completely "out of hand." Among other things, the court referred to "scorched earth litigation" and said that attorneys for both parties were "obstructionists." (Click here to read the case*) 

Scorched earth litigation tactics are often the product of what social scientists and negotiation experts call "attribution errors." When a person makes a mistake, he will attribute situational factors as the reason for the problem rather than blame himself: I was careless; I was exhausted; I was ill. On the other hand, the same person who makes allowances for himself will attribute the actions of his adversary to internal factors: he is dishonest; he is a cheater; he is immoral.

I have seen attribution errors by lawyers many, many times: A claim for extras is not because of a legitimate disagreement about the contract documents, but because the contractor intentionally underbid the work and now is asserting frivolous claims. An owner rejects a claim for extras not because he really believes the work is included in the contract price but because he wants to get something for free. Of course personalities and pettiness can create conflict, and there are those who prosecute or defend claims without good cause; but most often claims can be resolved when people are willing to attribute human error as the cause of the dispute rather than human failings.

That is not to say that construction claims are always easily resolved. Construction is a risky business, and when things go wrong parties do go into self-preservation mode. However, litigation is costly enough without burning money to destroy the other side. Objective risk analysis is essential. It is not enough to convince yourself that you are right, but can you convince a judge or 12 jurors? Will they be able to comprehend your arguments, sort through the piles of evidence, and make the correct decision? Have you spent enough time listening to the other side's arguments to see if there is any common ground or how a judge or jury might react to their side of the case?

In addition to a comprehensive legal analysis of a claim and an objective view of the psychological barriers to conflict resolution, serious consideration must be given to the economic analysis of a claim. Often parties will think in terms of the likelihood of success in prosecuting or defending a claim, with only a secondary thought being given to the costs of litigation and the risks of having to pay the other side's costs and attorneys fees. This phenomenon is illustrated in the recent construction law case mentioned above.

The plaintiffs were homeowners in Newport Beach, California. They filed a lawsuit against their home improvement contractor, alleging claims for breach of contract, fraud, accounting, and violations of California Business & Professions Code section 17200, a law designed to protect competitors and consumers from illegal, fraudulent, and unfair business practices. As a result, it appears the lawsuit was framed in such a way that the dispute was not just about the work being done right or on time or within budget, but the contractor was accused of fraudulent, illegal, and unfair business practices. (Attribution errors?) The contractor filed a cross-complaint for $84,000 against the homeowners and, apparently, the lawyers began the litigation equivalent of a  "full-court press" that eventually lead to the trial court judge's condemning remarks about scorched earth litigation.

Ultimately, the jury found against the homeowners and in favor of the contractor, awarding $20,401, substantially less than the $84,000 the contractor had sought. The contractor then filed a cost memorandum seeking more than $105,000 in costs.The trial court awarded a little more than $28,000 as the reasonable costs of the litigation. This amount included an award of $3700 out of the $36,000 sought for expert witness fees under California Code of Civil Procedure section 998, a law enacted to encourage settlements. The contractor appealed, claiming the trial court committed error by not awarding more for the costs of litigation. The court of appeals affirmed the trial court's order, and awarded the homeowners their costs on appeal.

Apparently attribution errors extended to the arguments before the court of appeals, as the appellate court noted:

[Contractor] somewhat histrionically insists there was a "procedural ambush" and a deliberate attempt to deprive [him] of the right to respond, rather than an error on the [Homeowner's] part.

And the scorched earth litigation continued on appeal:

After considering a 42-page opening brief, a 33-page response, a 39-page reply and a record exceeding 1200 pages on appeal from what should have been a simple motion to tax costs, one can perhaps begin to understand the trial court's reaction.

SCOREBOARD

First Half (trial court phase): Homeowners-$0; Contractor-$20,000 out of $84,000 in damages plus $28,000 out of $105,000 in costs.

Second Half (appellate phase): Contractor-$0; Homeowners- awarded costs of appeal.

We do not know how much the parties paid in attorney fees. Probably a lot. Presumably there was no attorney fee provision in the construction contract so each side had to bear their own fees.

I often wonder about cases like this. Would the contractor have come on so strong, spent so much money, and fought so hard if the lawsuit had been limited to construction issues instead of the additional allegations of fraud that impugned his reputation and character? What could have been done to avoid such an outcome? Here are a few questions worth considering the next time you are contemplating going to trial:

• Is it possible that you misjudged the motivation of the other side?
• Does the amount in dispute justify the expense of trial?
• Are you willing to bear the emotional toll and the distractions that trials entail?
• Have you thought about how a trial, win or lose,  will affect your family, partners, or shareholders?
• When deciding to take the case through trial, did you factor in your attorneys fees and costs of litigation and the possibility of having to pay the other side's attorneys fees and costs, including their expert witness fees? 
• Did you conduct an objective risk analysis of your chances of prevailing?
• Will a jury understand your case?
• If you factored in costs and fees, did you consider that the court might not award you all the costs and fees you would be asking for?
• Did you consider the possibility of an appeal and even a retrial?
• Did you factor in the time value of money?

Of course, some cases have to go to trial because the results of the parties' risk analyses are in different brackets (my last shot at a  March Madness reference, I promise). But in most cases, when parties objectively consider their legal and economic risk analyses, and the psychological barriers to resolving their conflict, common ground can be established and the dispute can be amicably resolved prior to trial.

 *The Court of Appeal designated the featured case as one not suited for publication in the Official Reports which means it can not be cited or relied upon by courts or parties.

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The Critical Path recently reported on a study showing lawyer overconfidence as a barrier to the efficient resolution of disputes. This post will focus on a different study and a recent case that illustrate another barrier to conflict resolution: parties who view disputes as warfare and litigation as a battlefield.

Researchers have found that men in war simulations often overestimated their chances of winning, making them more likely to attack and behave aggressively, resulting in unnecessary losses that could have been prevented with a more balanced approach. In a recent "unpublished " opinion of the California Court of Appeal, a case in which the defendants engaged in "scorched earth tactics," according to the court,  overly aggressive conduct resulted in unnecessary losses for the defense. Click here to read the case. (Note: California Rules of Court prohibit courts and parties from citing or relying on opinions not certified for publication, except as specified by rule 8.1115.) 

The plaintiff in the case was a flight attendant on a corporate jet. She was fired and sued her former employer, two corporate officers, and the pilot. At one point in the litigation, the case could have settled for between $200,000 and $400,000. One of the defendants told his lawyers that he was not interested in settling the case, but rather in destroying the former employee and her lawyer at whatever the cost. As a result, his lawyers engaged in an aggressive litigation strategy described by the court as follows:

The ensuing pace and vitriol of this litigation is suggested by the circumstance that no less than five summary judgment motions were filed, two of them by Medvig. Unsurprisingly, the discovery process was reduced to warfare that was as intense as it was costly.

Costly indeed. With bills of $150,000 to $200,000 per month, the inevitable happened. First, the case did settle, with the defendants paying the former employee not $200,000 or even $400,000, but rather $675,000. And a second dispute erupted between defendants and their lawyers over legal fees, so the law firm withdrew from the case and sued for more than $1,000,000, having only been paid $200,000 for the work of its lawyers. An arbitrator awarded the law firm $938,457 for the unpaid fees, $327,000 for attorney fees incurred to collect the fees, costs of $152,105, plus 10% interest.

The law firm then filed a petition with the trial court to confirm the arbitration award against the defendants. Ultimately, the trial court entered judgment for $1,551,215. The defendants appealed, lost, and the court of appeal awarded costs of appeal to the law firm for an unspecified amount. 

Moral of the Story

To paraphrase a 1970's catchphrase, "Stuff happens." So do disputes. They happen in life, and in business. How we respond to them is our choice. Is there an alternative to the "destroy the opposition at whatever cost" approach to litigation? Of course there is. One of my favorite Japanese proverbs describes an approach that is both economical and wise: "Even a piece of paper has two sides". 

You can spend a lot of money hammering the opposition with discovery to beat them into submission or use it as a precise instrument to figure out what's on the other side of your own story. This will enable you to evaluate the case, analyze the risk of going to trial, and engage in meaningful settlement negotiations. In addition to a factual inquiry, you may want to consider the emotional elements that may be driving the litigation. For example:

• What are the conditions and circumstances of the other side?
• What is the financial condition of the other side?
• What business or personal pressures is the other side facing?
• What would my interests be if I were on the other side?

When we try to see things from the other side's perspective, we can more clearly focus on the strengths and weaknesses of our side of the story. Anger is replaced by wisdom. Fewer mistakes are made. Economical resolutions are reached. On the other hand, when the focus is on destroying an opponent, our judgment becomes slanted; we look at the dispute solely through the narrow lens of our own experiences filtered by our own prejudices.

In the case cited above, decisions based on anger and retribution thwarted a $400,000 settlement and left the defendants with a bitter 1.8 million dollar pill to swallow. I hope their experience is good medicine for us all.

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Yesterday a district court judge appointed a special master to mediate a lawsuit between four major record labels and Jammie Thomas, a Minnesota woman who allegedly downloaded and distributed more than a thousand songs on the internet in violation of federal law. The case is deemed by many to be a vanguard in the music industry’s effort to thwart the practice of peer to peer (P2P) file sharing, which is costing the music world a bundle, according to industry experts. The strategy seems to be that the threat of a lawsuit and heavy fines will deter music lovers from unlawfully downloading and distributing music to their friends.

The special master/mediator, Jonathon Lebedoff, a former chief magistrate judge of the District of Minnesota, has a great deal of mediation experience-he was responsible for the settlement of the Dalkon Shield litigation, for example. Nevertheless, the good judge must overcome a number of barriers to resolve this conflict.

Barrier No. 1-Mediation is Less Likely to Succeed if it is Involuntary

Mediation is based on the premise that parties who voluntarily participate in the process and agree to devote their time, money, and resources toward problem solving will be sufficiently invested to find a way to resolve their dispute. In this case, the record industry and Ms. Thomas were ordered to mediate the case prior to July 16, 2010, and Plaintiffs’ representative, Recording Industry Association of America, was ordered to pay the special master $400 per hour to conduct the mediation. In my experience, parties who are ordered to mediate a dispute rarely have the requisite personal investment to fully engage in the mediation process and maximize the opportunity to settle the case. They simply show up to comply with a court order but their hearts are not into it. Furthermore, unless the parties decide it is in their mutual best interest to have one side pay for the mediator, it is unwise to force one side to pay for the mediator because the side being forced to pay the full freight will resent it and the side going along for the free ride will not be sufficiently invested in the process to care if it succeeds or not.

Barrier No. 2-Bad Timing Can Destroy the Chances of a Successful Mediation

The best time to mediate a case is when both sides feel they have sufficient information to analyze the risks of trial and calculate the reasonable range of settlement. If parties attempt to mediate too early, the defense may feel it needs more information before a reasonable offer can be made; mediate too late and the plaintiff may have spent so much money on the litigation that its only viable option to recoup its fees and costs is to proceed with trial. If you wait to mediate the case until after the verdict, then the prevailing party has less risk to consider and will be less flexible in the negotiations.

In the Jammie Thomas case, the special master/mediator is being asked to mediate a dispute that has already resulted in two jury verdicts in favor of the record companies. The first trial resulted in a jury award of $222,000 in statutory damages which was thrown out by the trial judge. The second trial resulted in a jury award for $1,920,000 in statutory damages which the trial judge reduced to $54,000.

Thus Judge Lebedoff must try to facilitate a settlement by helping Ms. Thomas see the wisdom of  paying all or part of the $54,000 and convincing the record companies to waive their right to appeal the trial judge’s reduction of their seven-figure verdict. This will not be easy.

Barrier No. 3-Litigation Risk Analysis Should Include Collectability

Assuming liability and damages have been properly analyzed, the collectability of a judgment must be factored into a litigation risk analysis. In other words, does the defendant have sufficient assets to satisfy a judgment? If not, it may be very difficult to settle the dispute. With nothing to lose, a party may not feel it necessary to work out a compromise.That seems to be the case with Ms. Thomas.

Ms. Thomas is a young mother of four who works as a natural resource coordinator for the Millie Lacs Band of Ojibwa Indians. While I know nothing about her finances, it is interesting that the record companies are the ones who seem anxious to get the case settled, not Ms. Thomas. Perhaps they realize that they are spending a lot of money to enforce a judgment that may not be collectable.

Greg Sandoval of CNET News reported in January 2010 that Ms. Thomas rejected a settlement offer of $25,000. In response, according to Mr. Sandoval, the record companies released the following statement, "It is a shame that Ms. Thomas-Rasset continues to deny any responsibility for her actions rather than accept a reasonable settlement offer and put this case behind her[.]"

Barrier No. 4-A Zero-Sum Attitude in a Dispute Resolution Setting

Commercial mediation works very well when all the parties share the same objective: the resolution of a dispute. But when a party simply wants to prove it is right and that the other side is wrong, reason or logic rarely prevail in a mediation session. This zero-sum attitude does not take into account the emotional and financial toll of a trial, an appeal, and perhaps more trials and appeals.

This seems to be the situation that Judge Lebedoff faces as the mediator in the Jammie Thomas case. One of her defense lawyers told CNET that they have always sought a $0 award and that the defense lawyers planned to challenge even the reduced damage award. And though the Plaintiff record companies appear to want to settle the case, Mr. Sandoval reports that they would be just as happy to appeal the ruling of the district court judge that greatly reduced the statutory damage award.

Fortunately, all of these barriers can be overcome if the parties will set aside their trial advocacy skills and focus on their negotiation advocacy skills.This change in attitude coupled with the problem solving skills of Judge Lebedoff can overcome any barrier that may exist. Best wishes to Judge Lebedoff and the parties in the upcoming mediation.

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I like Abraham Lincoln’s adage about preparation: “If I had eight hours to chop down a tree, I'd spend six hours sharpening my ax.” This post is about sharpening our negotiating axes through a pattern of preparation that includes rigorous legal analysis. My friend and fellow mediator, Don Philbin of San Antonio, Texas wrote one of the finest articles I have read on the subject entitled, “Prepare for Mediation: A Multidisciplinary Approach to Negotiation Preparation." You can read his article by clicking here. (PDF) It will surely sharpen your negotiation skills and help you efficiently resolve many difficult disputes. Here is a summary of Don's article:

1. Rigorous Legal Analysis Forms the Basis Negotiation Preparation.

 [Preparation] is the be-all of good trial work. . . . Everything else, felicity of expression, improvisational brilliance, is a satellite around the sun. Thorough preparation is that sun.         -Louis Nizer

In reviewing the essentials of the rigorous legal analyses that lie at the base of any economic analysis, New York litigator Louis Solomon concludes that “the importance of intelligent, critical, analytical, yet realistic case evaluation cannot be overstated.” Solomon notes that case evaluations should begin early and be updated consistently, including at certain regular intervals.The goal is assessing risk, not achieving perfection. In a recent article, he condenses the evaluation process into five key steps:

identify potential issues;

evaluate issue relationships and overall case bearing;

evaluate the risk or probability of each outcome (fact and law intensive);

evaluate possible upside and downside exposure; and

identify the indirect and collateral issues from the client’s perspective.

2. Decision Tree Analysis Helps Develop and Test Scenarios

In decision tree analysis, you establish the key events of the litigation through trial. You then estimate the probability for success of the key events and the dollar values of the potential final outcomes. A decision tree visually depicts this process in as much detail as may be desired. A more complex decision tree may include the chances of success of potentially dispositive motions, such as summary judgment, or the impact of rulings on certain key evidence. On the other hand, a basic decision tree may only depict liability and damage issues.
 
When evaluating liability and damages, you start with the basic question: what is the chance of prevailing on the issue of liability? If liability can be established, what is the amount that will be awarded for damages? The outcome will provide a range for settlement purposes

The process itself is as valuable as the result because it structures our analysis and focuses our attention on the component parts of the problem. In considering the range of outcomes and their probabilities, the parties not only come to a more realistic view of their options, they are able to communicate those scenarios in a common vernacular.

You can read my post on decision trees entiled, Dispute Resolution, Decision Trees, and Albert Einstein by clicking here.

3. Anchoring

As we move from dispute analysis to negotiation planning, we are often faced with the decision to either make the first offer or await one from the other side. That decision turns on a number of variables. One commentator argues that anchoring “describes the process by which the human mind does virtually all of its inferential work.” Anchors function much like our “gut” reactions to the value of an object or lawsuit – the “thin slice” our subconscious sends our conscious mind to evaluate. The more relevant information our analytical mind has, the less we are swayed by an unreasonable anchor. Mistaken or misguided anchors can increase the odds of impasse and have other unintended consequences.

4. Preparation Provides a Framework for Options

Litigants must make choices [about the claims] or turn them over to others for a binding decision. Unwilling to drain every swamp looking for evidence, they are often faced with making decisions with less than perfect information. The challenge then is to make the best decision with the information they do have or budget an appropriate amount based upon the developed choices. Economic analysis helps narrow the field from the legally possible to the economically viable

Outstanding trial lawyers spent considerable time and effort honing their skills to be effective courtroom advocates. But since most cases settle before a verdict is reached, it is equally important to develop effective negotiation advocacy skills. I hope you will spend some time with Don's article to help you sharpen your ax.

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Bear with me as I pay my respects to a lifelong hero who influenced my life for good:

John Wooden, the Wizard of Westwood, was the greatest coach of all-time. He passed away June 4, 2010; 4 months shy of his 100^th birthday. While he will be remembered for his 10 NCAA basketball championships as the head coach of the UCLA Bruins, he always considered himself first and foremost a teacher. He taught principles of living based on his Pyramid of Success, and shared his wisdom through sayings that have been quoted for decades in virtually every educational, athletic, professional, and business forum and setting.

Even though I was never very good at handling a basketball (giving hard fouls was my forte), I have been pretty good at finding ways to sharpen my skills as a negotiator and a mediator.

 Here are a few of the things I learned from Coach Wooden’s playbook:

• PREPARATION: “Failure to prepare is preparing to fail.”
• HARD WORK: “Nothing will work unless you do.”
• PATIENCE: “Do not let what you can not do interfere with what you can do.”
• PERSEVERANCE: “It’s not so important who starts the game as who finishes it.”

And here is how I have applied these sayings of his to the field of negotiations and dispute resolution:

1. If you do not prepare for mediation, you are preparing for the mediation to fail. Claims are not settled in a vacuum, they must be rigorously measured against the realities of trial before the negotiations begin. Questions about liability and damages, evidence and admissibility, costs and fees, must all be evaluated; the impact of litigation and trial on clients in terms of time, emotion, and resources must be scrutinized; and an objective study of the strengths and weaknesses of the other side’s positions must be undertaken in advance of the mediation. This is not to say that extensive discovery on every conceivable issue must be completed but sufficient thought must be given to these issues to enable you to negotiate to the best of your ability and with your client’s best interests in mind.
2. Mediation does not work unless the parties are willing to work on both objective and subjective levels. They work better when lawyers are willing to set aside trial advocacy skills in favor of negotiation advocacy skills.  They work best when both sides focus on finding ways to resolve the dispute instead of perpetuating it.
3. Do not let the tactics of the other side interfere with the implementation of your settlement strategy. You can not control your opponent but your preparations will enable you to take control of the negotiations by anchoring the offers and demands within a reasonable settlement range based on the facts of the case, the applicable law, and the record of verdicts in similar cases. Studies have shown that the first party to make a reasonable demand or offer anchors the negotiations in his favor. Thereafter, the negotiations tend to be driven in that direction.
4. Have the mindset that you are going to see the mediation process through to the end. Be prepared to endure the ups and downs of a mediation session. Don’t allow your emotions to take you out of your game plan. Unfortunately, I see this happen all too often. For example, plaintiff believes the reasonable range of settlement to be $500,000 to 250,000. The defense, believes the settlement value is between $150,000 to 225,000. In other words, unbeknown to each other, they begin the negotiation with only $25,000 separating Plaintiff’s potential lowest demand and the defendant’s potential highest offer. However, the plaintiff wants to give himself plenty of room to negotiate so he makes an initial demand of $1,000,000. The defendant’s reacts emotionally to this number: “It’s outrageous; they are not negotiating in good faith; I’m not even going to respond with a counter offer.” After some time, defendant may respond with an equally ridicules number, $25,000. How does the plaintiff react? The same way and before you know it, both sides become frustrated and the mediator declares an impasse. If you are going to convene mediation, be prepared to finish the process. Allow the mediator to help the parties work through the process to find clarity and to maximize the chances for a reasonable resolution of the dispute.

Mediators are not miracle workers; they can not create a settlement out of thin air, and no amount of their “hot air” will convince parties to settle a case that has not undergone rigorous analysis by both sides. Take a page from Coach Wooden’s playbook: prepare, work hard, control what you can, and endure to the end. And when you are in the middle of a difficult negotiation, remember one more thing John Wooden taught, "Flexibility is the key to stability."

Thank you, Coach Wooden. Thanks for everything.

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Pre-nuptial agreements (or “What Happens When Our Marriage Fails?” agreements) seem awfully cold-hearted. We read about them when the Tiger Woods and Paul McCartneys of the world have marital melt-downs. Most people can’t imagine building a marriage on the foundation of such a document. I quess it goes something like this:“You are my soul mate, my one and only, now sign this…” While many would be reluctant to ask their betrothed to contemplate divorce before the "I dos" are even spoken, construction professionals should not be shy about making contractual arrangements for the disputes that will likely arise during the course of construction. 

Construction professionals often fall in love with an exciting project or can’t wait to be associated with a certain owner or design team, and they enter into contractual relationships without giving much thought to what happens if the project fails. Or they are so enamored with the prospect of a lucrative venture that they do not want to consider what happens if someone breaches the contract. Instead most people rely on boilerplate contractual language that may or may not be suitable for the proposed project, and hope for the best. There is a better way.

Dispute resolution provisions in contracts (or “What Happens When Claims Arise?” provisions) are the product of this cold-hearted reality: the plans and specifications, means and methods of construction and management of a project are rarely perfect. Since everyone knows this why do disputing parties spend so much time and money trying to prove in a court of law that they are right and the other guy is wrong? Why not draft dispute resolution procedures that empower parties to resolve disputes in the most balanced, cost-effective way possible? During my 25 years as a construction lawyer, I was always amazed when sophisticated parties would bemoan the cost and time drain of litigation but never changed their contracts to limit the impact of litigation on their businesses.

There is much that can be done during the contracting phase that can prepare the parties to resolve their disputes in a more cost effective manner. For example, many construction contracts include provisions that require parties to submit to mediation before a lawsuit is even filed. Other contracts require that the parties mediate their dispute as a first step and if that fails, proceed to arbitration. Since arbitration can be as expensive as a trial in civil court, some contracts include limitations on the arbitration process.

An arbitration provision that limited discovery was the subject of a recent California Court of Appeals decision (PDF) in a case where a corporate employer fired one of its in-house attorneys, and he sued for wrongful termination. The corporate employer then filed a motion to compel arbitration in accordance with the terms of the employment contract. The lawyer opposed arbitration on the grounds that the arbitration provision was unenforceable due to the discovery limitations imposed by the contract. The trial court found that the provision concerning witness depositions was flawed, declined to sever the provision, and denied the employer’s motion to compel arbitration.

The Court of Appeal reversed the trial court, stating:

We disagree with the trial court for two reasons. First, arbitration is meant to be a streamlined procedure. Limitations on discovery, including the number of depositions, is one of the ways streamlining is achieved. In Armendariz [a California Supreme Court case], the court stated that the parties are entitled to discovery sufficient to vindicate their claims. The court also acknowledged that discovery limitations are an integral and permissible part of the arbitration process. "'Adequate'" discovery does not mean "unfettered" discovery. Armendariz specifically recognized that parties may agree to something less than the full panoply of discovery permitted under the California Arbitration Act, Code of Civil Procedure section 1283.05. (Armendariz, supra, at pp. 105-106; see also Martinez v. Master Protection Corporation (2004) 118 Cal.App.4th 107, 118-119 [agreement permitting one deposition and a document request did not as a matter of law fail to afford adequate discovery]; Mercuro, supra, at p. 183 [provision permitting an arbitrator to authorize additional depositions for "good cause" was not unconscionable].)

The discovery provision reviewed by the Court of Appeal is an example of careful pre-dispute lawyering:

Each party shall have the right to take the deposition of one individual and any expert witness designated by the other party. Each party also shall have the right to make requests for production of documents to any party. The subpoena right specified below in paragraph 4 [[e]ach party shall have the right to subpoena witnesses and documents for the arbitration'] shall be applicable to discovery pursuant to this paragraph. Additional discovery may be had where the Arbitrator selected pursuant to this Agreement so orders, upon a showing of need.

I am not suggesting that this provision is ideal in the context of a construction contract, but it does illustrate the benefit of careful draftsmanship to control the dispute resolution process and provide an efficient, cost effective way to manage claims. In addition to discovery issues, and depending on the laws of your state, arbitration provisions could be drafted to cover rules of evidence, the scope of the arbitrator’s authority, trial court review and appellate rights, the definition of prevailing party and the circumstances by which attorney fees and costs are awarded, all of which could be drafted in a way that incentivizes the parties to settle disputes prior to the arbitration proceedings.

The bottom line is this: construction professionals deal with risk every day. Those who manage it best generally do the best. Carefully drafted dispute resolution provisions are an important part of preparing for the risks associated with construction projects. Therefore, you should draft them with the same degree of care that you give to every other aspect of a project, for the success and profitability of a project can not be measured until all disputes are resolved.

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